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Small and mid-tier businesses: Time for a deep breath

The Small Business Administration recently released its annual scorecard on agency small business awards. On the surface it appears to be grim—small business prime contracting in fiscal year 2011 dropped below 22 percent after several years of flirting with the 23 percent goal. While the news was not particularly good, and the report should not be ignored, it’s also important not to over-react to it. One year does not a trend make and the report needs to be seen in the context of the year it reflects.

And fiscal 2011 was an unusual year.

In 2011, agencies did not get their final appropriation until the beginning of the third quarter. The appropriations’ passage was followed immediately by the debt ceiling debate, which, while not directly tied to immediate spending, had a real effect on agencies’ planning and spending commitments. As a result, the overall market for government services was down nearly 4 percent—or four times more than the reduction in small business’s share of the market. While the two data points are not immediately comparable, since one looks at total spending and the other at market share, they are not entirely disconnected either. For example, the final spending bill compelled instant spending reductions by agencies, a significant portion of which, it is safe to assume, were low hanging fruit drawn from smaller contracts that were disproportionately performed by small business.

Finally, insourcing of work from the private sector, particularly at the Defense Department, was still moving forward. While data does not exist to measure the actual impact on small businesses, we know anecdotally that small businesses were significantly harmed by DOD’s undisciplined insourcing activity.

Despite this important context, the SBA report will nonetheless spur reactions from Capitol Hill and from the administration. Even before the release of the scorecard, the House passed the 2013 National Defense Authorization Act, which contains a provision to increase the government’s small business prime contracting goal to 25 percent and creates a new, “advanced small business” set-aside program to help firms that have grown beyond the small business size standards but now exist in that no-man’s land of government contracting known as the “mid-tier.” While both proposals have merit and are based in good intentions, both proposals ought to be dropped or significantly altered.

The proposal to raise the small business goal to 25 percent is simply premature. Prior to 2011, the government has only missed the current 23 percent goal by less than 1 percent in each of the last few years. New rules, including those providing for small business set-asides under multiple-award contracts, are just now going into effect. Further, any effort to raise the goals ought to be part of a holistic approach that carefully assesses the total small business participation in government contracting, including subcontracts. Only then can we assess whether there are functional or business areas in which small businesses are inappropriately under-represented and whether additional incentives or requirements are needed.

The advanced small business set-aside provision is similarly premature. While there can be no doubt that there is a squeeze on mid-tier firms competing for government contracts that merits serious attention, the latest data make clear that the challenges are not the same in each business sector. Moreover, the proposal that passed the House is called a pilot program but contains no restraints as to its breadth and few requirements for meaningful metrics and analyses that are essential to determining its impacts. In the meantime, there are other, less disruptive, steps the government can take to begin to address the significant issues facing mid-tier firms, such as requiring that acquisition strategies for significant services procurements include analyses of the likely industrial base impacts of the proposed strategies, like those routinely conducted for major weapons systems acquisitions.

There should be no debate about the critical role small and mid-tier firms play in the government marketplace. Nor should there be any debate about the benefits of ensuring the long term viability of high-performing firms in both of those categories. But those steps need to be built on strong, data-driven evidence—most of which only the government can generate and assess. And we’re not there yet.

About the Author

Stan Soloway is president and chief executive officer of the Professional Services Council.

Reader Comments

Sat, Jul 21, 2012

5) GSA claims its employees are overworked and can no longer handle additional and/or existing vendors. All existing employee manual operations should be analyzed via GSA’s Software Engineers to automate current manual human labor. It may be possible to handle unlimited vendors and buyers once this project is completed. Each new additional GSA Human assignment should be analyzed by software engineers for possible automation.
6) I strongly believe an independent software company should be allowed to give alternative 21st Century solutions versus FSSI.
7) There will be very little motivation for these very few FSSI vendors to vigorously compete via price / best quality. All prices are available via gsaadvantage.gov and each vendor will easily identify competitors.
8) Reduce the number of schedule solicitations. Currently GSA claims it costs $3,000 per year, per contract to maintain each contract and numerous GSA employees. There are 40 solicitations (GSA and VA). The solicitations should be consolidated down to a handful—with a goal of a single solicitation (contractors could then choose to consolidate their contracts or maintain separate contracts depending on their business models).
9) It is this writer's belief FSSI is nothing similar to Corporate volume purchasing.
Example lets take Walmart. They currently have 66,000 vendors and counting each day. FSSI eliminates virtually all competition with possible oligopoly price fixing. Keep in mind all vendor prices are available via gsaadvantage.gov Giving very few companies exclusive selling rights via a long term contract and eliminating competition is not the answer. Why have 1,000s of existing GSA software programs go to waste monitoring a few vendors. GSA needs to enhance existing software to truly and easily maintain a vigorous open competitive market via existing web sites (gsaadvantage.gov and other existing procurement sites). Programmatically controlling the buyer via software is the 21st solution.

Sat, Jul 21, 2012

FSSI eliminates virtually all competition with possible oligopoly price fixing. Keep in mind 1,000s of government buyers purchase via government purchase sites similar to amazon.com.
I wanted to summarize a 21st Century Open market solution vs FSSI.
I strongly believe GSA should modify existing software to control buyers rather than eliminating competition via the FSSI procurement program. If buyer breaks protocol hence buyer would be disciplined. This software project can be done without additional funding. GSA, DoD & NASA can prioritize this software project via existing employed Software Engineers. It takes the will and priority to make this happen.
From what I can see there are some really big holes in the procurement process.
1) Via this GAO report http://www.gao.gov/products/GAO-12-705T most purchases were made outside of GSA procurement web site www.gsaadvantage.gov. A solution to this problem would be take away the buyers PHYSICAL credit card and store the credit card information online via www.gsaadvantage.gov Again this can be done with no additional funding. Amazon.com is a perfect example. I know the government is not a company but I am certain GSA has great software engineers to accomplish this task via a top priority and no additional funding software project. For open market purchases buyer currently utilize fbo.gov and/or other existing procurement sites. The same projects can be accomplished via these sites.
2) An independent software company should be allowed to screen scrape information from gsaadvantage.gov to prove selected FSSI Vendors "DO NOT" offer the lowest prices/ best quality.
3) Via Vendor uploads develop back end software to monitor and reject outrageously priced items. Example a $25,000 toilet seat or $5,000 hammer. Statistical databases exist via the free market to determine low / high prices per item hence halting outrageously priced item(s) uploaded to gsaadvantage.gov. GSA software engineers would need to create software to utilize this database.
4) I believe various government buyers have different volume purchase requirements. FSSI is not a one size fits all solution. Example many government buyers have less than a $3,000 requirement. Internet purchasing may be more advantageous for this type of purchase. Example open competition via gsaadvantage.gov

Tue, Jul 17, 2012
J Haus

You can say that Small Businesses are not being hurt just yet, that one year does not necessarily tell the tale, but by the time you realize that there is a trend it will be too late for many Small Businesses.
I can tell you from experience that the Federal Strategic Sourcing Initiative (FSSI) is actively killing Small Businesses. By the time the Fed realizes that it is hurting Small Businesses, it will be too late for many of them. This will only add to the economic issues we already face.
Buckle down everyone. We are headed for some tough times.

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